On July 22nd, at the White House, after meeting with the chief tariff negotiator of Japan, Ryota Akizawa, US President Trump solemnly announced on the Truth Social platform: The US and Japan have reached the "largest" trade agreement in history.
This trade dispute that lasted for several months was resolved with a compromise just 9 days before the tariffs were to be imposed on August 1st. Although the "15% equivalent tariffs" announced by Trump were lower than the 25% previously threatened, they would still have a profound impact on the economies of both countries. The 550 billion US dollars investment commitment made by Japan became a crucial factor in this agreement.
The last-minute compromise
On July 8th, Trump issued a final ultimatum. In a letter to Japanese Prime Minister Shigeru Ishiba, he threatened to impose a 25% tariff on Japanese products exported to the US starting from August 1st. This tariff is one percentage point higher than the 24% tariff he announced on "Reform Day" on April 2nd.
"Please understand that this figure of 25% is far below the level required to eliminate the trade deficit between our countries." Trump wrote in the letter. This threat sent shockwaves through the Japanese automotive industry - automobiles account for 28.3% of Japan's total exports to the United States, and the total export value in 2024 is approximately 50 billion US dollars.
Trade negotiations immediately entered an emergency phase. The Japanese economy has already been clouded by the specter of tariffs, and the Bank of Japan lowered its forecast for economic growth in 2025 to 0.6% in June. During the White House meeting on July 22, the chief Japanese negotiator, Kajiya Ryo, and the US Treasury Secretary Bentsen had a final consultation lasting about 30 minutes, ultimately finalizing the framework of the agreement.
"Beinstein indicated that 'the negotiations are progressing very smoothly'." A Japanese official who was observing the negotiation process disclosed that the government of Japanese Prime Minister Ishiba Mutsuro, which had just suffered a crushing defeat in the upper house election, regarded this trade negotiation as an important bargaining chip for maintaining their hold on power.
The three core contents of the agreement
Trump enthusiastically announced on social media: "We have just completed a major agreement with Japan, perhaps the largest deal ever." This agreement encompasses three core elements:
First, regarding tariff arrangements. The United States will impose a "reciprocal tariff" of 15% on Japanese goods imported to the US, which is much lower than the 25% rate previously threatened. In return, Japan will grant zero-tariff treatment to American automobiles, trucks, rice, and some agricultural products.
"A year ago, a 15% tariff level would have been shocking. But today, we can all breathe a sigh of relief," commented Brian Jacobson, the chief economist of Annex Wealth Management. This comment reflects the general sentiment of the market.
Second, investment commitment. Japan has pledged to invest 550 billion US dollars in the United States, focusing on the automotive manufacturing, energy, and semiconductor industries. Trump particularly emphasized that the United States would receive "90% of the profits", but did not specify the profit distribution mechanism.
Third, market opening. Japan agreed to open its market to American automobiles and agricultural products, ending the decades-long import restrictions on American rice, and allowing American SUVs and trucks to enter its market. Trump claimed that this would create "hundreds of thousands of jobs" for the United States, especially in the automotive and agricultural sectors.
For the United States, this agreement means tangible economic benefits. The US Chamber of Commerce estimates that if the $550 billion investment is realized, approximately 200,000 jobs could be created in 2026. Auto workers in Michigan and farmers in Iowa will be the direct beneficiaries.
For Japan, the agreement is a double-edged sword. On the one hand, it avoids a catastrophic 25% tariff; on the other hand, the 15% tax rate still poses a serious challenge to the automotive industry. Toyota expects its profits to decrease by 8% in 2025 due to tariffs, and Nissan has considered moving some production lines to the United States to avoid tariffs.
